EB-5 China Retrogression: How it May Impact Job Allocation and Escrow Agreements

As of May 1, 2015, a retrogression date of May 1, 2013 has been established. This means that only Chinese foreign nationals holding an I-526 approval notice with a Priority Date of May 1, 2013 or earlier will be authorized to apply for their immigrant visa. The effects of this looming retrogression, for EB-5 visas available to Chinese nationals, can broadly be broken into two categories: implications for Chinese investors and implications for the regional center principals, project developers, and their counsel. These implications are especially significant, considering that Chinese foreign nationals constitute an increasingly overwhelming majority of overall EB-5 visa recipients, as evidenced in the chart below:

The inability of Chinese investors to immediately apply for and assume conditional permanent resident status (green card) following the approval of their I-526 petitions has far-reaching consequences besides simply filing for adjustment. Most notably, the Chinese investors will assume CPR status and file their I-829 petitions (for a permanent green card) much later than their non-Chinese counterparts, which will require regional centers to adjust and reconsider certain aspects of their offering documents, including job allocation, and what the appropriate escrow triggers are for projects with Chinese investors.

i. Job Allocation

Job allocation will need to be carefully considered by regional centers and their counsel when drafting offering documents for projects with a mix of Chinese and non-Chinese investors, since these two different investor groups will require the jobs at very different times in the project’s life cycle. Ideally this will not be a problem, but regional centers can take a conservative approach post-retrogression by implementing a job allocation policy that attributes jobs based on assumption of CPR status or I-829 filing (rather than I-526 filing/approval). Thus, the investors who will need the jobs first (non-Chinese investors) will receive the earliest-created jobs (e.g., construction jobs) and jobs that are not created until much later in the project life-cycle (e.g., operations jobs) will be available to Chinese investors when the time comes for them to file their I-829 petitions.

ii. Escrow Agreements

With retrogression having been established, it would be wise for Chinese investors to strategize I-526 filings when determining escrow triggers allowing for the release of investor funds into the project. For example, if the funds are not released from escrow until I-526 approval, projects with a large percentage of Chinese investors, many of whom will be strategizing around longer processing times to prevent age-out of children, are set to face long periods of time before they can access investors’ funds and will likely be required to rely more heavily on bridge financing. Thus, regional centers and their counsel should properly plan for this possibility, and investigate their need for bridge financing, which will eventually be replaced by investor funds.[1]

[1]See USCIS Policy Memorandum, EB-5 Adjudication Policy, PM-602-0083, May 30, 2013 (“If the project commences based on the interim or bridge financing prior to the receipt of the EB-5 capital and subsequently replaces it with EB-5 capital, the new commercial enterprise may still receive credit for the job creation under the regulations.”)

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